Health Reform and the Re-Emergence of IT Outsourcing Services

Changes in healthcare are having massive ramifications on healthcare IT, including work related to the updates of ICD-9 to ICD-10 and HIPAA 4010 to 5010 data sets and a range of other initiatives. It’s somewhat reminiscent of the IT staffing shortages in the late 90’s as global firms put resources behind Y2K readiness and currency valuations changes related to the Euro conversion. IT services firms were in high demand for their ability to augment IT departments with supplemental or project based talent.

Changes in healthcare are having massive ramifications on healthcare IT, including work related to the updates of ICD-9 to ICD-10 and HIPAA 4010 to 5010 data sets and a range of other initiatives. It’s somewhat reminiscent of the IT staffing shortages in the late 90’s as global firms put resources behind Y2K readiness and currency valuations changes related to the Euro conversion. IT services firms were in high demand for their ability to augment IT departments with supplemental or project based talent.

Today in healthcare, we’re seeing similar demands for temporary staffing and project management expertise in IT, and the ripple effect has spurred meaningful sector consolidation. In the last 13 months, eight healthcare IT services companies have been acquired, with SAIC snapping up two:

What is behind this M&A activity?

Meaningful Use – Hospitals need help deploying the technology and spending the subsidies related to Meaningful Use of electronic health records (EHR) solutions as called out in the HITECH act.

Regulatory Compliance Initiatives – As noted above, the migration to ICD-10 and HIPAA 5010 impacts a range of clinical, financial, and HIM software systems and workflows.

Increasing Demand for Interoperability & Analytics – Awash in new information and data, predictive analytics and business intelligence capabilities are keys for identifying gaps in quality and cost.

These macro factors are forcing healthcare organizations to make substantial investments in technology. The need to maximize the value of these technology investments has created increasing and sustained demand for skilled healthcare IT professionals that can provide project management, implementation, training, support, optimization, and integration and reporting services. This demand is illustrated in the fact that the healthcare IT services market is expected to grow at a 28% CAGR from 2010 to 2014, which outpaces the projected growth of the healthcare IT market:

Source: RCNOS

Our view is that consolidation will continue as healthcare IT demand persists for the next decade, and large outsourcing services firms and private equity groups look for ways to get in on this growth, and become even more relevant in healthcare.